Neural Networks in Finance

Neural Networks in Finance

Gaining Predictive Edge in the Market

1st Edition - December 22, 2004

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  • Author: Paul McNelis
  • eBook ISBN: 9780080479651

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Description

This book explores the intuitive appeal of neural networks and the genetic algorithm in finance. It demonstrates how neural networks used in combination with evolutionary computation outperform classical econometric methods for accuracy in forecasting, classification and dimensionality reduction. McNelis utilizes a variety of examples, from forecasting automobile production and corporate bond spread, to inflation and deflation processes in Hong Kong and Japan, to credit card default in Germany to bank failures in Texas, to cap-floor volatilities in New York and Hong Kong.

Key Features

* Offers a balanced, critical review of the neural network methods and genetic algorithms used in finance
* Includes numerous examples and applications
* Numerical illustrations use MATLAB code and the book is accompanied by a website

Readership

Upper division undergraduates and MBA students, as well as the rapidly growing number of financial engineering programs, whose curricula emphasize quantitative applications in financial economics and markets

Table of Contents

    • Preface
    • Chapter 1: Introduction
      • 1.1 Forecasting, Classification, and Dimensionality Reduction
      • 1.2 Synergies
      • 1.3 The Interface Problems
      • 1.4 Plan of the Book
    • I: Econometric Foundations
      • Chapter 2: What Are Neural Networks?
        • 2.1 Linear Regression Model
        • 2.2 GARCH Nonlinear Models
        • 2.3 Model Typology
        • 2.4 What Is A Neural Network?
        • 2.5 Neural Network Smooth-Transition Regime Switching Models
        • 2.6 Nonlinear Principal Components: Intrinsic Dimensionality
        • 2.7 Neural Networks and Discrete Choice
        • 2.8 The Black Box Criticism and Data Mining
        • 2.9 Conclusion
      • Chapter 3: Estimation of a Network with Evolutionary Computation
        • 3.1 Data Preprocessing
        • 3.2 The Nonlinear Estimation Problem
        • 3.3 Repeated Estimation and Thick Models
        • 3.4 MATLAB Examples: Numerical Optimization and Network Performance
        • 3.5 Conclusion
      • Chapter 4: Evaluation of Network Estimation
        • 4.1 In-Sample Criteria
        • 4.2 Out-of-Sample Criteria
        • 4.3 Interpretive Criteria and Significance of Results
        • 4.4 Implementation Strategy
        • 4.5 Conclusion
    • II: Applications and Examples
      • Chapter 5: Estimating and Forecasting with Artificial Data
        • 5.1 Introduction
        • 5.2 Stochastic Chaos Model
        • 5.3 Stochastic Volatility/Jump Diffusion Model
        • 5.4 The Markov Regime Switching Model
        • 5.5 Volatility Regime Switching Model
        • 5.6 Distorted Long-Memory Model
        • 5.7 Black-Sholes Option Pricing Model: Implied Volatility Forecasting
        • 5.8 Conclusion
      • Chapter 6: Times Series: Examples from Industry and Finance
        • 6.1 Forecasting Production in the Automotive Industry
        • 6.2 Corporate Bonds: Which Factors Determine the Spreads?
        • 6.3 Conclusion
      • Chapter 7: Inflation and Deflation: Hong Kong and Japan
        • 7.1 Hong Kong
        • 7.2 Japan
        • 7.3 Conclusion
      • Chapter 8: Classification: Credit Card Default and Bank Failures
        • 8.1 Credit Card Risk
        • 8.2 Banking Intervention
        • 8.3 Conclusion
      • Chapter 9: Dimensionality Reduction and Implied Volatility Forecasting
        • 9.1 Hong Kong
        • 9.2 United States
        • 9.3 Conclusion
    • Bibliography
    • Index

Product details

  • No. of pages: 352
  • Language: English
  • Copyright: © Academic Press 2004
  • Published: December 22, 2004
  • Imprint: Academic Press
  • eBook ISBN: 9780080479651

About the Author

Paul McNelis

Affiliations and Expertise

Robert Bendheim Professor of International Economic and Financial Policy at Fordham University Graduate School of Business. Professor of Economics at Georgetown University until 2004.

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